(1) the assessee is the Arcot Dhanasekhara Nidhi Ltd. It carries on chit fund business, receives moneys on fixed, current and recurring deposits and lends out money, with or without security. Its source of income is derived form the chit fund business by way of commission and default interest form chit subscribers, who fail to pay the subscription within the stipulate time. It also earns income by way of interest on loans advanced to chit subscribers on the security of their chit subscriptions or on promissory notes. The company also pays interest to is depositors.
It was the claim of the assessee that the company does this kind of business only with its own share holders and has no transactions with any person who is not a shareholder. The assessee claimed that its income was exempt on the principle of mutuality. The Income-tax Officer however rejected the claim for it was admitted before the Income-tax Officer that there were certain shareholders who had received dividends without contributing any income either by way of chit commission or interest on loan. The Income-tax Officer also rejected the contention that the requirement was satisfied that all the contributors to the common fund should be entitled to participate in the surplus and that all the participators in the surplus should be contributors to the common fund, in the view that there was no complete identity between the contributors and participators. Accordingly the claim to exemption from tax was rejected for all the assessment years 1952-53 to 1959-60. The Appellate Assistant Commissioner on appeal confirmed the view of the Income-tax Officer. There was a further appeal to the Tribunal. By this time this court had rendered its decision in Kumbakonam Mutual Benefit Fund Ltd. v. Commissioner of Income-tax : 43ITR358(Mad) . The decision being in favour of the assessee's claim, the Tribunal allowed the appeal.
(2) On the application of the Commissioner of Income-tax, under section 66(1) of the Act, the question 'whether the assessee's income from chit business is exempt form tax' has been referred for the consideration of this Court.
(3) The decision of this Court cited above has since been reversed by the Supreme Court in Commissioner of Income-tax v. Kumbakonam Mutual Benefit Fund Ltd. : 53ITR241(SC) . The short question then is, whether in the light of this decision of the Supreme Court there is any scope for the claim to exemption form tax.
(4) Mr. Srinivasan, learned counsel for the assessee, urges that, despite the decision of the Supreme Court, to which there is identity between the contributors and the participators in surplus, that part of the income should stand exempted. We have carefully gone through the decision and are unable to agree that such a view is at all tenable. The entity which earned the income in question is an incorporated body and the principle laid down by their Lordships is that the existence of this incorporate body can be ignored only when there is a complete identity between those who contribute the income and those who participated therein.
In a case where such complete identity does not exist, their Lordships observe that the person who receives the income receives it as a dividend in his right as share-holder of the company and not on any other basis. If that is so, the existence of the incorporated entity cannot be ignored, so that it is no longer a case of the same body of persons contributing to a common fund which is shared by the same body of persons again. On the other hand, the incorporated company which according to the law distributes portions of that income by way of dividends to its share-holders, whether they contributed to the common fund or not. Looked at form that point of view the entire structure of the case alters and it should necessarily follow that even though there may be certain persons who both contributed to and participated in the common fund, that would not suffice to satisfy the test of mutuality. We are unable to agree that despite the decision of the Supreme Court, there is still scope for exemption of any portion of the income as claimed. The question is accordingly answered in the negative and against the assessee. In the circumstances of the case, there will be no order as to costs.
(5) Reference answered.